Re: [gang8] Re: Putting Chartalism In Its Place?

[Gunnar Tómasson <gunnar.tomasson@xxxxxxxxxxx>]

Re. the following:

> The state theory of money explains how the government creates and
> supports the monetary base.  Some argue that the State can do that by
> simply declaring its base money to be legal tender.  That is a
> necessary, but not sufficient condition.  There must also be a broad
> need for the private sector to acquire base money, as well as a way to
> control its abundance.  Both are accomplished through compulsory tax
> collection.

Comment:

In the case of SDRs - a world currency "created and supported" by the IMF -
its "abundance" is "controlled" through an "allocation" process based on
subjective evaluation by the IMF of statistical criteria relating to the
"adequacy" of  international "liquidity" relative to the level of world
trade, with another set of statistical criteria governing the actual use of
SDRs in official settlements among IMF members.

Considering also that the IMF has no "compulsory tax collection" authority,
does it not follow that the _essentials_ of the State Theory of Money are
not really such insofar as monetary economics is concerned - that they are
_non-essential_ attributes of contemporary monetary regimes?

Gunnar



----- Original Message -----
From: "William F Hummel" <wfhummel@xxxxxxxxxxx>
To: <pkt@xxxxxxxxxxxxxxxx>
Sent: Sunday, September 14, 2003 12:34 PM
Subject: Re: [gang8] Re: Putting Chartalism In Its Place?


> Gunnar wrote:
>
> >All time-consuming production of goods and services is predicated on
> >Credit - in one form or another.
> >
> >That is to say, Credit - "money" - precedes, and is pre-condition, for
> >Government Taxation. -
> >
> >concerns "Credit - in one form or another."
> >
> Credit is not necessarily "money," the relevant subject in discussing
> chartalism or the state theory of money.
>
> If credit is to qualify as money, it must be negotiable.  That is, it
> must be widely accepted as a medium of exchange.  Its negotiability
> may be limited to a local region and supported by mutual consent. like
> Ithaca Hours.  To be negotiable on a national scale, however, requires
> the intervention of the government.  Credit can serve as money on a
> national scale only after the government has established a monetary
> base.  Such credit is denominated in base money and depends on the
> assumption that it can be converted at par into base money.
>
> The state theory of money explains how the government creates and
> supports the monetary base.  Some argue that the State can do that by
> simply declaring its base money to be legal tender.  That is a
> necessary, but not sufficient condition.  There must also be a broad
> need for the private sector to acquire base money, as well as a way to
> control its abundance.  Both are accomplished through compulsory tax
> collection.
>
> Taxes obviously create a need for the private sector to acquire base
> money.  On balance, the private sector can only do that by delivering
> goods or services to the State.  Taxes are essential in managing the
> abundance of base money.  Taxes, together with the issuance of
> interest-bearing debt, allow the government to recapture the base
> money it has spent.  That enables the central bank to add or drain
> base money as needed to influence short term interest rates, and
> thereby the amount of credit money demanded.
>
> William F Hummel
>
>
>